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COMMONWEALTH OF MASSACHUSETTS OFFICE OF CONSUMER AFFAIRS AND BUSINESS REGULATION DEPARTMENT OF TELECOMMUNICATIONS & ENERGY Cable Television Division RATE ORDER CTV 04-3/04-4 Petition of Comcast Cable Communications, Inc. to establish and adjust the basic service tier programming and equipment rates for the communities currently served by Comcast that are subject to rate regulation. ____________________________________________________________________________ APPEARANCES: Peter H. Feinberg Associate General Counsel Comcast Cable Communications, Inc. 1500 Market Street Philadelphia PA 19102 FOR: COMCAST CABLE COMMUNICATIONS, INC. Petitioner William H. Solomon, Esq. 319 Main Street Stoneham, MA 02180 FOR: THE TOWNS OF ACTON, ASHBURNHAM, BOXBOROUGH, DEERFIELD, FRANKLIN, HUDSON, SHERBORN, STONEHAM, SUNDERLAND, TOWNSEND, AND WHITMAN, AND THE CITY OF ATTLEBORO Intervenor Gilbert Hoy, Jr. Board of Selectmen 333 Washington Street Brookline, MA 02445 - and - Peter J. Epstein, Esq. Epstein & August, LP 101 Arch Street, Suite 900 Boston, MA 02110 FOR: THE TOWN OF BROOKLINE Intervenor Christopher Petrini, Esq. Town Counsel Town of Framingham 150 Concord Street Framingham, MA 01702 - and - Peter J. Epstein, Esq. Epstein & August, LP 101 Arch Street, Suite 900 Boston, MA 02110 FOR: THE TOWN OF FRAMINGHAM Intervenor Marlene Michonski Board of Selectmen Town of Hatfield 59 Main Street Hatfield, MA 01038 FOR: THE TOWN OF HATFIELD Intervenor Peter J. Epstein, Esq. Epstein & August, LP 101 Arch Street, Suite 900 Boston, MA 02110 FOR: THE CITIES OF FALL RIVER, FITCHBURG AND MALDEN, AND THE TOWN OF NORTH ATTLEBOROUGH Intervenor Jane Medeiros Friedman City of New Bedford Office of the City Solicitor 133 William Street New Bedford, MA 02740 FOR: THE CITY OF NEW BEDFORD Intervenor The Honorable Mary Anne Clancy City of Newburyport 60 Pleasant Street Newburyport, MA 01950 FOR: THE CITY OF NEWBURYPORT Intervenor The Honorable Michael J. Bonfanti City of Peabody 24 Lowell Street Peabody, MA 01960 FOR: THE CITY OF PEABODY Intervenor Peter J. Epstein, Esq. Epstein & August, LP 101 Arch Street, Suite 900 Boston, MA 02110 - and - John J. Clorite, Jr. 145 Windward Drive Somerset, MA 02726 FOR: THE TOWN OF SOMERSET Intervenor William August, Esq. Epstein & August, LP 101 Arch Street, Suite 900 Boston, MA 02110 FOR: THE TOWN OF WINCHESTER Intervenor CTV 04-3/04-4 TABLE OF CONTENTS I. INTRODUCTION ........................................Page 1 II. STANDARD OF REVIEW AND BURDEN OF PROOF ...............Page 2 III. FCC FORM 1240 - DISCUSSION AND ANALYSIS .................Page 4 A. Rate Change Implementation Date .........................Page 4 B. Removal of Franchise Related Costs from the FCC Form 1240 ......Page 7 1. Introduction ...................................Page 7 2. Company Proposal ..............................Page 7 3. Discussion and Analysis .......................... Page 10 a. The Proposal in General ..................................... Page 10 b. The Proposal Applied ..................................... Page 16 C. Programming Costs .............................................. Page 19 1. Introduction .................................. Page 19 2. Standard of Review ............................. Page 19 3. Discussion and Analysis .......................... Page 22 a. CN8 .................................. Page 22 b. NECN ................................ Page 25 D. Initial Regulated Rate for the City of Newburyport ............. Page 26 E. Town of Hudson ................................... Page 31 F. Basic Tier Rates in the Towns of Somerset and Swansea .......... Page 32 IV. FCC FORM 1205 - DISCUSSION AND ANALYSIS ................ Page 34 A. Drops .......................................... Page 34 B. Commissions ...................................... Page 36 C. Conclusion .............................................. Page 37 V. OTHER ISSUES ........................................ Page 37 VI. ORDER ............................................. Page 39 CTV 04-3/04-4 Page 1 I. INTRODUCTION On August 2, 2004, Comcast Cable Communications, Inc. (“Comcast” or “the Company”) filed with the Cable Television Division (“Cable Division”) of the Department of Telecommunications and Energy a proposed initial basic service tier (“BST”) programming rate on Federal Communications Commission (“FCC”) Forms 1240 for the City of Newburyport. On September 30, 2004, Comcast filed with the Cable Division proposed BST programming rates on FCC Forms 1240 for the communities already subject to rate regulation served by Comcast in Massachusetts.1 In conjunction with its FCC Forms 1240 filings, the Company filed a nationwide FCC Form 1205, with proposed equipment and installation rates based on a fiscal year ending December 31, 2003. On October 21, 2004, the Cable Division issued an order consolidating the two proceedings and docketed the consolidated matter as CTV 04-3/04-4. Comcast Cable Communications, CTV 04-3, CTV 04-4, “Order Consolidating Proceedings” (2004). Comcast implemented changes to its BST programming, equipment and installation rates proposed in these filings on January 1, 2005. The Cable Division held an evidentiary and public hearing in Boston on March 9, 2005. The Towns of Acton, Ashburnham, Boxborough, Brookline, Deerfield, Framingham, Franklin, Hatfield, Hudson, North Attleborough, Sherborn, Somerset, Stoneham, Sunderland, Townsend, Whiteman, and Winchester, and the Cities of Attleboro, Fall River, Fitchburg, 1 The regulated communities are listed on Attachment A. CTV 04-3/04-4 Page 2 Malden, New Bedford, Newburyport, and Peabody intervened in this proceeding.2 The evidentiary record consists of 447 exhibits, sponsored by Comcast, the Towns of Brookline, Framingham, North Attleborough, Somerset, and the Cities of Fall River, Fitchburg, Malden, New Bedford, and Peabody. In addition, the record includes Comcast’s responses to information requests admitted as Cable Division Exhibits 1 through 54, and Comcast’s responses to record requests. The Company filed a brief on April 4, 2005. The Town of Hudson filed a reply brief on April 6, 2005. II. STANDARD OF REVIEW AND BURDEN OF PROOF The FCC has created specific forms incorporating the provisions of its rate regulations, upon which a cable operator calculates its rates. The FCC Form 1240 allows a cable operator to annually update its BST programming rates to account for inflation, changes in external costs, and changes in the number of regulated channels. Instructions for FCC Form 1240, at 1-2; 47 C.F.R. § 76.922(e)(1). To adjust rates for projections in external costs or for projected changes to the number of regulated channels, the cable operator must demonstrate that such projections are reasonably certain and reasonably quantifiable. 47 C.F.R. §§ 76.922(e)(2)(ii)(A) and 76.922(e)(2)(iii)(A). The FCC Form 1205 establishes rates for installations and equipment, such as converters and remote controls, based upon actual capital costs and expenses. Instructions for FCC Form 1205, at 7, 12-13. The FCC Form 1205 is prepared on an annual basis using 2 The Honorable Edward M. Lambert, Jr., Mayor of the City of Fall River, provided public comment. CTV 04-3/04-4 Page 3 information from the cable operator’s previous fiscal year. Id. at 2. Subscriber charges for equipment shall not exceed charges based on actual costs as determined in accordance with FCC regulations. 47 C.F.R. § 76.923(a)(2). The standard under which the Cable Division must review rate adjustments is found in the FCC’s rate regulations. Specifically, the rate regulator shall assure that the rates comply with the requirements of Section 623 of the Communications Act of 1934, as amended. 47 U.S.C. § 543; see also 47 C.F.R. §§ 76.922, 76.923, and 76.930. The Cable Division may accept as in compliance with the statute BST rates that do not exceed the “Subsequent Permitted Charge” as determined by federal regulations. See 47 C.F.R. § 76.922(c). The Cable Division may also accept equipment and installation charges that are calculated in accordance with federal regulations. See 47 C.F.R. § 76.923. In addition, the Cable Division shall only approve rates it deems reasonable. G.L. c. 166A, §§ 2, 15; 47 U.S.C. § 543; 47 C.F.R. § 76.937(d); see also 47 C.F.R. § 76.942. The burden of proof is on the cable operator to demonstrate that its proposed rates for BST programming and accompanying equipment and installations comply with federal law and implementing regulations. 47 U.S.C. § 543; Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, Report and Order and Further Notice of Proposed Rulemaking, MM Docket No. 92-266, FCC 93-177, 8 FCC Rcd 5631, 5716, at ¶ 128 (1993) (“Rate Order”) ; see also 47 C.F.R. § 76.937(a). CTV 04-3/04-4 Page 4 III. FCC FORM 1240 - DISCUSSION AND ANALYSIS This proceeding involves the Cable Division’s review of over 200 FCC Forms 1240. In this section, we first address issues that are general to many, if not all, forms. We then address specific issues that are raised by individual community filings. A. Rate Change Implementation Date For most communities, Comcast submitted its previous FCC Forms 1240 on or about February 28, 2003, but did not implement any resulting rate changes until January 1, 2004. Comcast Cable Communications, Inc., CTV 03-1, at 1, 4, n.4 (2003). Prior to those filings, the Company or its predecessors had adjusted BST rates annually in July. In those previous filings, Comcast included a 2003 projected period starting June 1, 2003. Id. On the current